Sunday Update: 22 September 2019

The TSP stock funds took a little breather this week. The C fund ended the week down 0.51%, S fund down 0.45%, and I fund down 0.58%. Each stock fund chart is setting up a different consolidation pattern on a weekly basis. We’ll look at the weekly set ups but first, let’s widen the aperture and see where we are in the big scheme of things…

Very Long Term

The S&P500 (C fund) chart below is a logarithmic view of price action going all the way back to 1925. This chart does not help us in making TSP reallocation decisions but, we can make some valuable observations.

This 5 wave Super Cycle, that began at the bottom of the Great Depression in 1932, is approaching its end.
Wave III extended beyond the upper channel line. Other than this deviation, the long-term channel has provided an upper and lower boundary for almost 100 years!
Once wave V is complete, the market will begin a very significant decline…

Long Term

Now that we understand the 100 year perspective, and the importance of wave V, let’s zoom in to the last 20 years… The chart below is the S&P500 (C fund) 20 year chart where each tick is one month. The chart begins with the top of wave III, shows the 10 year wave IV consolidation, and ends with us approaching the completion of wave V. You can see that the structure and symmetry of wave V is very similar in form to that of the entire Super Cycle Wave. Important observations regarding wave V:

Wave V is playing out in 5 sub-waves within the channel.
The jury is still out on whether or not the December 2018 low is actually the bottom of leg 4. See the 2 possibilities described in depth in the 30 June Sunday Update.
In the short term (weekly basis) we are watching very closely to see which possibility for leg 4 plays out before the final push to leg 5.

Short Term

In the 3 year weekly chart of the C fund below, there are 2 critical areas to watch. First is the upper resistance line. IF the C fund gets above this line and accelerates higher, then we are in leg 5. IF the market rolls over at or below the resistance line, the next critical area is the 50WMA (blue moving average line). If the market accelerates below the 50WMA then wave 4 should complete between 2100 and 2400. That would set us up for a very strong move to new highs and the completion of leg 5 (V).

The S fund is setting up a pretty clear diamond consolidation pattern. After last week’s reversal, any continued weakness should push the S fund down to the 50WMA and the lower channel line. A breakout, one way or the other, from the next test of the 50WMA should dictate the direction of the next significant move for the S fund.

The I fund has been tracing out a horizontal consolidation pattern. After last week’s reversal at the upper channel line, any continued weakness should bring the I fund down to its 50WMA and another test of the lower channel line. A strong weekly close above 66 means we’re likely headed to 72.

Bottom Line: Long term, buy and hold investors still have some time to stay fully invested in the stock funds. Leg 5 (Wave V) is not yet complete. We will certainly see higher highs from current levels, though possibly not in a straight line. The possibility that plays out for leg 4 will dictate how soon leg 5 is completed. In the short term, watch the upper channel lines and 50WMA lines of all 3 TSP stock funds. In general, a weekly close above the upper channel lines indicates we are in leg 5. A weekly close below the 50WMA or lower channel lines indicates leg 4 is not yet complete.

Have a great week!

Jerry

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